Drugmakers Game the Patent System and Reap Billions, FDA Says

(Bloomberg) -- Efforts by drugmakers to thwart less-expensive rivals for pricey biologic medicines cost the U.S. health-care system billions of dollars last year, the Food and Drug Administration’s chief said in laying out a plan to end such practices.

The agency wants to bring greater attention to the market for the complex drugs, which are generally injected or infused. It plans to work with the Federal Trade Commission to stop “gaming tactics” like piling up patents to extend the commercial dominance of brand-name medicines, FDA Commissioner Scott Gottlieb said in a speech on Wednesday in Washington.

Gottlieb said he also wants Congress’s help to close any loopholes that enable drugmakers to hinder competition from so-called biosimilars.

“Competition is, for the most part, anemic,” Gottlieb said in a speech to the Brookings Institution.

The FDA effort on biologics is one part of President Donald Trump’s blueprint for bringing down U.S. drug pricing. Unlike traditional pills made from chemical compounds, biologic drugs are made from living organisms. They have proved crucial to treating cancer and other diseases in recent years but have sparked heated complaints over what in some cases are record price tags.

AbbVie Inc.’s Humira, for example, a biologic that treats rheumatoid arthritis, is the best-selling drug in the world. Its base price before discounts and rebates is about $63,300 per year, according to data compiled by Bloomberg, and can trend higher depending on how often a patient needs to use it. But while the FDA has approved generic competition for Humira that could lower costs for patients, none of those drugs have hit the market.

‘Rigged’ System

Biologics, which are typically injected or infused into patients, are often referred to as specialty drugs. Only 1 percent or 2 percent of the U.S. population takes a specialty drug, according to a study last year from Rand Corp. Yet biologic drugs accounted for 38 percent of U.S. prescription-drug spending in 2015, Rand found.

In 2010, Congress granted the FDA the ability to approve generic versions of biologic drugs, which are called biosimilars because living organisms can’t be exactly copied. The agency approved the first biosimilar in 2015 and has since approved 10 more, including two Humira biosimilars from Amgen Inc. and Boehringer Ingelheim GmbH.

Only three of the 11 approved biosimilars have made it to the market. The FDA determined that the U.S. health system could have saved $4.5 billion last year if all nine of the biosimilars approved through 2017 had been on the market. The agency approved two biosimilars this year.

The commissioner blamed the lack of lower-cost options on what he has previously called a “rigged” system under which insurers and pharmacy-benefit managers enter exclusive contracts with drugmakers to cover only the older, original biologic drug in exchange for rebates or discounts.

Gottlieb also pointed to a tactic drugmakers use to gain sometimes more than 100 patents just before a drug is about to lose its original patent protection. The companies then use those patents to tie up biosimilar competition in court, something AbbVie has done with Humira. For example, Amgen and AbbVie reached an agreement last year that will allow Amgen’s version of Humira, called Amjevita, to come to market in 2023, years after its approval by the FDA in September 2016.

“The branded drug industry didn’t build its success by being business naïve,” Gottlieb said. “They are smart competitors. But that doesn’t mean we need to embrace all of these business tactics, or agree that they’re appropriate.”

Avoiding Shrapnel

Gottlieb appealed to brand-name drugmakers to avoid the practices or face an erosion of public trust that he said could cause regulators and lawmakers to take shots at the industry.

“The shrapnel isn’t just going to tear apart the gaming tactics that we might agree are gratuitous and ill conceived,” he said. “I’m worried that the shrapnel could also fray the fragile market-based rewards that support new innovation.”

The FDA also has a role to play in helping biosimilar drugmakers increase market share, mainly by issuing guidelines for how the industry can prove a biosimilar can be substituted for the original drug it copies, similar to how traditional generic drugs are now. The agency issued a proposal in January 2017 but hasn’t finalized the document.

The FTC, in comments Monday on Trump’s blueprint, called on the FDA to issue the final proposal to allow automatic substitution of biosimilars.

“Experience with generic drugs teaches that automatic substitution is crucial for successful generic drug entry, market acceptance, and consumer savings,” the FTC wrote.

“In the absence of final FDA guidance, companies face significant uncertainty regarding how to construct and conduct the pivotal clinical trials that would prove interchangeability,” the FTC added.

The FDA is making the release of guidance for the industry a priority, Gottlieb said Wednesday.

©2018 Bloomberg L.P.